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Dan L. Frandson and Patricia E. Frandson v. Oasis Petroleum North America

April 27, 2011

DAN L. FRANDSON AND PATRICIA E. FRANDSON, PLAINTIFFS,
v.
OASIS PETROLEUM NORTH AMERICA, LLC,
DEFENDANT.



The opinion of the court was delivered by: Charles S. Miller, Jr. United States Magistrate Judge

ORDER GRANTING SUMMARY JUDGMENT IN FAVOR OF DEFENDANT

Before the court are cross-motions for summary judgment. For the reasons set forth below, the court grants defendant's motion and denies plaintiffs' motion.

I. BACKGROUND

Both parties contend the material facts are undisputed. After careful consideration, the court agrees - at least to the extent of the court's ruling. What follows is a recitation of the facts, not all of which are material to the court's decision.

Dan and Patricia Frandson are part owners of mineral interests located in Mountrail County, North Dakota. On March 30, 2005, the Frandsons entered into an oil and gas lease covering approximately 2,560 gross acres with John Holt, whose interest was later acquired by defendant Oasis Petroleum North America, LLC ("Oasis"). The parties used a standard form lease to which they attached an exhibit that contained a number of specifically negotiated terms, including the following option for extension of the lease:

Lessee has the right and option to extend this lease for an additional three (3) years beyond the 30th day of March, 2010, by remitting to the Lessor on or before the 30th day of March 2010, an amount of $75.00 per net mineral acre, in and under said lands as Lessee elects to exercise under this option. Such amount shall be paid by certified check.

(Doc. No. 16-1, p. 3). The focus of the present dispute is the requirement that the option be exercised by the tender of a "certified check." This proviso was included at the Frandsons' request based upon a recommendation of their attorney. (Doc. No. 18-1, dep. p. 17).

More than a month prior to the expiration of the option to renew, Oasis sent a letter by FedEx to the Frandsons dated February 10, 2010, stating, in relevant part, the following:

Oasis Petroleum North American LLC ("Oasis") is the current owner of the Oil and Gas lease you executed with John H. Holt dated March 30, 2005. In accordance with the option terms within the lease, Oasis is exercising its right to extend the current lease for an additional three years by payment of $75.00 per net mineral acre. The leased lands are describe as within: [Description omitted]

Enclosed is Oasis's check in the amount of $15,820.31 (210.9375 net mineral acres times $75.00) as total consideration for the three year extension. Please acknowledge receipt of payment by signing and dating the bottom of this letter and return one copy for our records.

Thank you for your cooperation. Should you have any questions, please call Kelly Domingue at 713-574-6957.

Yours very truly [Signature omitted]

Kelly Dominque Land Administration Manager Dan L. Frandson and Patricia E. Frandson hereby acknowledge the three year extension and have received the above check as consideration.

By:_________________________________ By:__________________________ Date:_______________________________ Date: __________________________ (Doc. No. 16-2).

The check that Oasis forwarded with the letter was not certified. (Doc. No. 16-3). Apparently, the land administrator for Oasis was aware of the check certification requirement, but believed that certified checks were no longer available because Oasis's bank had stopped certifying checks. (Doc. No. 16-8, dep. pp. 22-25). Oasis now concedes that some banks continue to certify checks and that it would have been possible for Oasis to have obtained one.

The Frandsons received Oasis's letter and uncertified check on February 23, 2010. (Doc. No. 18-2, dep. p. 19). On the next day or the day after, Patricia Frandson called Oasis and questioned its land administrator about the right to continue the lease with respect to the acreage not being held by production and was advised of the option language. Frandson did not say anything about the check not being certified. When questioned in her deposition as to why not, she testified she had not reviewed the lease before making the call. (Doc. No. 18-2, dep. pp. 20-22, 38).

After this initial phone call and during the five weeks until the March 30, 2010, deadline for exercise of the option, the Frandsons held onto Oasis's check - neither cashing nor returning it - and remained silent. During this same time frame, Oasis also took no action, including not following up with the Frandsons as to why they had not countersigned and returned Oasis's letter acknowledging their receipt of the check and the three-year extension. The explanation offered for the lack of follow-up was that Oasis had obtained from FedEx a receipt confirming delivery of the tender. (Doc. Nos. 16-8, pp. 41-46; 16-9, dep. pp. 73-76; 18-2, dep. pp. 22-23).

On April 23, 2010, the Frandsons sent a letter to Oasis stating the following: This letter is to officially notify you of our release from our 3-year contract extension. Our Oil and Gas lease gave you the option for a 3-year extension as long as we received a certified check before March 30, 2010.

We did not receive a certified check from you by the March 30, 2010 deadline (or at all), as stated in our contract. Therefore, this lease no longer binds us and we are released from the contract extension.

(Doc. No. 16-5) (emphasis in original). In response, Oasis took the position that it had validly exercised the lease option and filed an affidavit with the Mountrail County Recorder's Office on May 4, 2010, giving notice that the lease had been validly extended. (Doc. No. 16-7).

The Frandsons then initiated this action seeking a declaration that the lease had not been effectively renewed as to the acreage not being held by production. In addition, Frandsons also seek damages for slander of title, contending they have been unable to lease the acreage in question because of the affidavit filed by Oasis advising of the lease extension.

In its Answer, Oasis denies that the lease was not properly renewed and asserts the affirmative defenses of waiver and estoppel. Oasis also brings a counterclaim seeking a declaration that the option to extend the lease was validly exercised and that title to the extended leasehold interest be quieted in its name.

Oasis has proffered evidence from a bank official that Oasis had sufficient funds in its account through at least March 30, 2010, to cover its uncertified check. (Doc. No. 20). The Frandsons do not dispute this evidence.

II. DISCUSSION

A. Overview

Oasis acknowledges that its lease required the option to renew be exercised by tender of a certified check, but contends the requirement should not be enforced in this instance based upon the related, but yet distinct, arguments of waiver and estoppel. In addition, Oasis argues that strict compliance can be excused based on general equitable principles. For the reasons set forth below, the court concludes there was an implied-in-law waiver of the check certification requirement and that Oasis's tender was otherwise sufficient. And, while these conclusions are dispositive of the case, the court also agrees that Frandsons are estopped from claiming that Oasis's tender was insufficient.

B. Governing law

The law governing summary judgments is well known to the court and need not be restated in detail here. E.g., Torgerson v. City of Rochester, 643 F.3d 1031, 1042-43 (8th Cir. 2011). Substantively, the parties agree North Dakota law governs since this is a diversity action. E.g., Integrity Floorcovering, Inc. v. Broan-Nutone, LLC, 521 F.3d 914, 917 (8th Cir. 2008). In applying North Dakota law, the court is bound by the decisions of the North Dakota Supreme Court. Id.

C. Implied-in-law waiver under N.D.C.C. § 9-12-18

1. Introduction

Oasis argues that the Frandsons were required by N.D.C.C. § 9-12-18 to communicate a timely objection to its tender or be deemed to have waived their right under the option provisions of the lease to payment by certified check. N.D.C.C. § 9-12-18 reads as follows:

§ 9-12-18. Offer of performance--Mode--Waiver of objections. The creditor must make objections to the mode of an offer of performance at the time it is made to the creditor. If this is not done, any objection which could have been obviated at that time is waived by the creditor's failure to make the same.

In support of its argument, Oasis cites in particular to the North Dakota Supreme Court's decision in Motschman v. Bridgepoint Mineral Acquisition Fund, LLC, 2011 ND 46, 795 N.W.2d 327 ("Motschman").

The Frandsons disagree. Among other things, they argue that ยง 9-12-18 does not apply to options nor, more generally, to any agreement that requires a specific mode of performance. In support of their argument, Frandsons rely in particular upon the earlier North Dakota Supreme Court case of ...


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